There is a proven correlation between gross domestic product (GDP) growth and demand for air travel.
According to research in 2007 by the University of Nottingham, for every 10% increase in China’s GDP, the volume of air passengers rose by 8.4% and that of air cargo by 14.8%, assuming that other conditions remain unchanged.
If we do a parallel with Africa, the region should not be the exception. According to International Monetary Fund (IMF) data, sub-Saharan Africa has grown at an annual rate of 4.8% over the last five years, beating other emerging regions like Latin America (3.3%). The potential for further economic growth is still there, but this time however it is not coming only from the rising prices of commodities. Small and medium enterprises (SMEs) are responsible for some 40% to the continent’s GDP and contribute to 50% of overall employment in Africa.
Middle class demand
Certainly these successful SMEs will nourish better working conditions and higher wages and salaries, making the emergence of a middle class evident. If we look back into the last decade, sub-Saharan Africa’s poverty level has fallen from 58% in 1999 to 48.5% in 2010. Optimistically, that rate could fall to between 16% and 30% by 2030, according to the World Bank. And as the African Development Bank chief economist Mthuli Ncube said in one of his interviews to Reuters: “Reducing poverty means creating a middle class.”
We know the rest of the story. The middle classes are most certainly interested in safe and reliable air travel. And above all avoiding the inconvenient scenario of having to travel via Europe or Dubai to get to many African capitals.
For instance, in a quick internet travel search, we noted there were no direct flights available between two prominent African cities, and the cheapest flight is operated by a Middle Eastern airline via Dubai.
The same pattern is happening when it comes to trade between African countries. It is often cheaper to export something to another African country via Dubai or Europe than directly.
But despite this, we are seeing the emergence of air transport hubs in eastern and southern Africa, around three cities: Johannesburg, Addis Ababa and Nairobi. This is partly because they are all associated with their large state-owned carriers: South African Airways, Ethiopian Airlines and Kenya Airways.
Below are some of the major headwinds facing the aviation industry in Africa:
Closed skies: Many African countries restrict their air services markets to protect the share held by state-owned carriers. A 2006 study on the impact of open skies in the Southern African Development Community (SADC) region, demonstrated that prices on liberated routes have declined on average by 18%. And in cases where low-cost carriers entered the market, prices dropped 40%. On the flip side, passenger volumes would increase by 20% acting as traction for employment and tourism.
Safety: Africa reported the world’s highest rate of fatal accidents in 2013. As of the end of 2013, only 11 African states had achieved 60% implementation of the International Civil Aviation Organisation (ICAO) safety-related standards and recommended practices.
Taxation: Africa authorities see aviation as a cash cow to be milked. Aircraft landing charges are generally high by international standards, partly because of the absence of non-flight revenues from airport concessions. Sometimes taxation contains a combination of ‘solidarity’ taxes, tourism taxes, VAT, and infrastructure development fees.
There is still a lot to be done, but key for the growth of Africa’s aviation industry is government support and more involvement of international aviation bodies in consulting authorities and highlighting the opportunities. Côte d’Ivoire just gave us a good example of that. The state invested 10.6 million euros to rehabilitate domestic airports, so the national carrier Air Côte d’Ivoire can now link with several inland cities.
Ali Mhamedi is a senior associate at Infomineo.
Infomineo is a business research company, focusing on Africa and the Middle East. The company provides its clients, including the majority of the leading global management consulting firms and several Fortune Global 500 companies, with ad hoc data on countries, markets, companies and people gathered through primary and secondary research. For more information please contact [email protected] or visit www.infomineo.com.